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Thursday, 12 October 1972
Page: 1504

The PRESIDENT - Is leave granted? There being no objection, leave is granted.

Senator COTTON - Mr President, the annual report of Qantas Airways Ltd for the year ended 31st March 1972 shows that the company's operations for that year resulted in a net loss of nearly $6m, compared with a net profit of over $5m in the previous year. Such a disappointing result has been predicted for some time, and has been the basis of much speculation and comment both in the Parliament and elsewhere. It would be appropriate, therefore, for me to comment on the 1971-72 operations and to mention the steps that have been taken to improve matters and how these are faring.

Mr President,neither the Government nor the Board and management of Qantas have taken lightly the downturn in the company's fortunes. However, we must keep this matter in proper perspective, because to do otherwise could lead to inept judgments and hasty actions, with the possibility of adverse effects on the situation. Let me first summarise a few of the Qantas achievements over the past 10 years, some details of which are shown on pages 42 and 43 of the annual report. In that period -

(i)   Qantas has incurred losses on only 2 occasions, the first being due to a pilots' strike in 1966-67, and the second being last year. In fact, these are the only losses since 1923.

(ii)   The company has paid to the Commonwealth nearly $21 m in dividends, and provided over $19m for taxation.

(iii)   It has reduced its average operating cost per capacity ton-mile by nearly 13 per cent, a commendable achievement in view of the fact that the average payments to staff have almost doubled since 1963.

(iv)   Qantas has nearly trebled its traffic.

(v)   Without any subscription of capital, the Commonwealth's equity in the company rose from $5 2m to $74m.

(vi)   The Qantas front-line fleet has grown from 11 Boeing 707's, 4 Electras and 5 Super Constellations to 21 Boeing 707's and 5 Boeing 747's.

A very important factor to be remembered when considering the Qantas results for 1971-72 is that they are a reflection of the current serious financial state of the international airline industry. Since 1969 the international airlines generally have suffered a sharp decline in profitability, culminating in 2 economically disastrous years in 1970 and 1971 and involving a number of airlines in heavy operating deficits. Major and well-established airlines throughout the world have not been immune from the adverse economic consequences that have beset the industry, and reports of the 1971-72 results of a number of these airlines show losses, or reductions in profitability, greatly in excess of the reversal experienced by Qantas.

The significant factors producing the adverse trends in international airline profitability included a marked decline in traffic growth on the world's air routes, steeply rising operating costs aggravated by severe inflationary trends, an economic downturn in some of the important traffic generating countries, proliferation of low-yielding promotional fares by scheduled carriers without a sufficiently compensating increase in traffic and increased capacity in the major traffic markets resulting from the introduction by airlines of high capacity aircraft such as the Boeing 747. The scheduled airlines have also suffered a considerable and increasing loss of traffic to low-fare charter services that have developed significantly in the major traffic markets over recent years. I will refer to this aspect of competition between scheduled carriers and charters again later in this statement.

The company's annual report describes in detail the particular factors which affected the Qantas financial position adversely last year. It refers to such significant problems as the unprecedented increases in salary, wage, superannuation and aircraft insurance costs, the curtailment by the Commonwealth of the migrant intake, the increasing competitive impact of additional European airline services on the Kangaroo Route, the non-scheduled charter carrier competition offering low fares between Europe and South East Asia, the introduction of lower international mail carriage rates, and the fall in the rate of traffic growth on the South Pacific route following a general economic downturn, especially in the United States. None of these events could be avoided, either by Qantas or by the Government, and the obvious course to follow was for Qantas to adjust its organisation and service pattern to the new circumstances in which it had to operate. That it did so is evidenced by the fact that Qantas was able to hold its loss down to $6m - a considerable achievement in view of the factors influencing its business last year.

The Government, for its part, has shown its confidence in Qantas by providing $25m in the 1972-73 Budget for subscriptions of additional capital in the company, and by authorising it to go ahead with the order for its sixth Boeing 747 aircraft and with its new head office building, Qantas Centre. The Government has also carried out a major reorganisation of the Qantas board, increasing its size from 6 to 8 directors. This has been designed to bring added strength to the company in the fields of engineering, management, personnel relations, international and civil aviation policy and finance.

The first signs of real difficulty for Qantas appeared late in 1970, and the board and management took immediate steps to strengthen the company's commercial approach to its difficulties and to make appropriate adjustments and improvements in the company's cost structure. In fact, the company was able to turn a potential net loss of Si 5m into one of less than $6m. This is the achievement that is not readily apparent in the balance sheet Qantas was faced with cost increases totalling $12m, but managed to keep actual expenditure growth down to $3m, or 1.6 per cent.

It cannot be said, therefore, that Qantas has neglected to out costs wherever possible - the company did so within the limits available to it, having regard to the unavoidable increments in wage and salary levels which it had to meet. At the same time, it is pleasing to record that the drastic pruning of costs which had to be undertaken did not herald any ruthless large-scale dismissals of staff. Numbers were reduced largely through normal attrition and a freeze on recruitment, and the small additional reduction was achieved with proper regard for the interests of those found to be redundant in the changed circumstances.

During the latter part of the financial year 1971-72, the company introduced new low-fare proposals to meet the growing demand for cheaper air travel to and from this country. These fare initiatives, and I refer particularly to the $700 EuropeAustralia return fare and the $420 one way fare, had the strong support of the Australian Government, as did the more recent introduction of low cost package tours between Australia and Singapore. These moves have evoked remarkable public response, and the possibility of operating similar low cost holiday tours to other destinations is being examined by Qantas.

These efforts, in themselves, do not guarantee a significant improvement in the company's operating results for 1972-73 because the short term outlook in the industry is expected to remain difficult and Qantas cannot be isolated from world wide conditions. It is too early to predict the future trend with any certainty. However it is pleasing to record that the initiatives taken by Qantas to recover from the 1971-72 loss have produced some encouraging results so far. The new low-cost fares and the passenger appeal of its Boeing 747 aircraft have helped to increase substantially the Qantas load factors on the Kangaroo Route between Australia and Europe in the past 6 months. In fact, in August the average weekly economy passenger loading reached a record high of almost 80 per cent. This compares with a yearly average for economy passengers of about 53 per cent on that route for the 1971-72 financial year. It will be appreciated, however, that the profit margin from these new fares is low, and substantial patronage is required to make them profitable. Later this year Qantas will step up to a total of 5 Boeing 747 services a week on the Kangaroo Route, and the company is planning to increase to a daily Boeing 747 service on this route as soon as practicable.

While figures for the first 5 months - April to August - of the current financial year show a steady traffic growth on the Qantas total network, growth on the South Pacific route to the United States is not as buoyant, and capacity still remains a problem. However, under the procedures agreed between the United States and Australian governments in September 1971, the 2 governments are required to take into account the fact that the basic air transport agreement prescribes that the services operated by their airlines over the South Pacific route should bear a close relationship to the requirements of the public for such services. The decision of American Airlines, upheld by the United States Government, to reduce its current frequencies into Australia, and not to proceed with extra frequencies planned for the end of this year, was a heartening indication of an acceptance of the view we had emphasised in Washington concerning the excess capacity situation on the route. There has, in fact, been no increases in capacity provided by United States and Australian carriers this year since Qantas introduced its 4 Boeing 747 flights very early in the year and, at the same time, reduced the number of its Boeing 70? flights but retained a daily service.

The general performance by Qantas on the South Pacific route has clearly been enhanced by the introduction of its Boeing 747 services. In the financial year 1971-72 the company's competitive position suffered from the fact that one of the United States carriers had this aircraft type in use on the South Pacific for the whole year, whereas Qantas did not. As part of the settlement of the disagreement with the United States on frequencies in September 1971, after some deferment the Qantas Boeing 747s were brought into operation and the company's competitive position was thereby considerably improved, especially as the arrangements agreed upon have given Qantas the advantage of one 747 operation in 1972 more than the United States carriers. Any real improvement on the South Pacific, however, depends on an absence of undue increases in capacity and the stimulation of traffic growth. The Government encouraged and fully supported the Qantas move, with other airlines, to introduce new lower group fares on the South Pacific route between Australia and North America in April 1972. We are working with Qantas at the present time to find if other possible reductions can be effected in promotional or other kinds of fares to provide greater incentive for travel, especially of tourists, between North America and Australia.

In the context of the present financial difficulties being experienced by Qantas, it is relevant to mention the need for the Government to adhere firmly to its longstanding policy of limiting the commencement of new services into and out of Australia. Additional carriers are authorised only where it can be demonstrated that their operations are justified by the volume of traffic between the country concerned and Australia. At the same time, the Government must also continue to assure for Qantas, through negotiations with other selected governments, that essential traffic points are available for the Australian airline so that there should not be an undue dependence on too limited a number of points on the route. A most significant long term problem is the growth of charter operators, and their competitive impact on Qantas as well as on the other international airlines. This problem is aggravated by a lack of an internationally accepted regulatory framework enabling scheduled services and charters to develop as a viable total transport system, provid ing a stable and orderly environment to meet the increasing pressures for mass low cost transportation. Civil aviation authorities of responsible governments with a big stake in civil aviation, including Australia, are giving close attention to this difficult problem which has become most acute on the North Atlantic route. It is hardly necessary for me to say that the Australian Government is determined to continue to provide a suitable environment for Qantas to function as a profitable enterprise and fulfil its invaluable national role in a most highly competitive and technologically expensive industry. It would be inappropriate for me to divulge detailed financial information relating to Qantas operations during the current year, but I can report that, although the company continued to operate unprofitably in the first 4 months of the year, its financial results have improved steadily. July showed an almost break even result and good profits were earned in August and September. The company has consistently bettered its operating budget in this period. The benefits gained from overseas currency revaluations have been mentioned in the annual report they are extremely great - and these gains will be brought into account each year as they are realised. It should not, of course, be assumed that these promising signs indicate an end to the problems facing Qantas. In particular, the international airline industry is a seasonal one, and some of the months to follow are not normally good traffic months. I have mentioned earlier the commercial initiatives taken by Qantas to improve its operating results. Naturally, the company will also consider, at the appropriate time, any technical innovations which may help to keep it abreast of its competitors. One project which is the subject of very careful study is the Concorde supersonic aircraft, as I have mentioned on many occasions.

In conclusion, let me say that Qantas is not only an instrument of national prestige. Tt provides significant economic benefits as a major employer and contributes foreign exchange advantages of the order of $100m annually. Qantas has been a strong promoter of tourism to Australia and carries half of Australia's exports by air. The airline, furthermore, constitutes a vital transport enterprise in times of emergency. Despite the problems now being experienced, I am satisfied that the Qantas board and management have taken, or have in train, constructive measures which will strengthen the company's financial position and ensure a return to profitability. Indeed, given the long term growth pattern of the aviation industry, there is no reason to be anything but confident that Qantas will continue to expand and prosper as it has during the past 52 years. I move: That the Senate take note of the statement.

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